Question

In: Accounting

The Caribbean Industrial Producers manufactures two products, “Zinc” and” “Ply”. The following sales forecast for 2016...

The Caribbean Industrial Producers manufactures two products, “Zinc” and” “Ply”. The following sales forecast for 2016 was decided on by the budget committee and presented to you the management accountant.

                                                     Sales forecast

Details

Zinc/units

Ply /units

December 2015

6,000

3,700

January 2016

5,500

4,000

February 2016

6,200

4,500

March 2016

5,000

5,200

April 2016

4,900

5,400

May 2016

6,400

4,800

Notes:

(i) During 2016 the company sold one unit of Zinc for $1,200 while one unit of Ply was sold for $$1,500.

(ii) To make one unit of Zinc four units of raw material BZN980 are used, while two units of raw material CZN980 are used to produce one unit of Ply.                                          .

(iii) Raw materials stock in units at the end of each month is to be held at a level equal to twenty percent (20%) of the forecasted sales for the next month.

(iv) It was decided by management that at the end of each month there should be enough finished goods stock on hand to meet fifteen (15%) of the sales for the next month.

(v) During 2016, direct raw material charge per unit was budgeted at ten percent (10%) of the unit selling price of the finished products.

Required:

For the period, January 2016 to April 2016 do the following:

  1. The company’s sale budget.                                                                                 
  2. The production budget for both products.                                                          
  3. The direct raw materials usage budget for both products.                                   
  4. The direct raw materials purchases budget.                                                        
  5. Outline four advantages that can be derived from proper budgeting practices within an organization.                                                                                                                    
  6. Briefly explain, using two examples what is meant by a “limiting budget factor”

Solutions

Expert Solution

a. Company’s sales budget

Particulars

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Zinc

Ply

Zinc

Ply

Zinc

Ply

Zinc

Ply

Zinc

Ply

Sales (Units)

5500

4000

6200

4500

5000

5200

4900

5400

6400

4800

Selling price

1200

1500

1200

1500

1200

1500

1200

1500

1200

1500

Sales value

       66,00,000

       60,00,000

       74,40,000

       67,50,000

       60,00,000

       78,00,000

       58,80,000

       81,00,000

       76,80,000

       72,00,000

b. Production budget:

Particulars

Dec-15

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Zinc

Ply

Zinc

Ply

Zinc

Ply

Zinc

Ply

Zinc

Ply

Zinc

Ply

Demand Sales (Units)

6000

3700

5500

4000

6200

4500

5000

5200

4900

5400

6400

4800

Closing Inventory
(15% of next month sales)

930

675

750

780

735

810

960

720

Opening inventory

825

600

930

675

750

780

735

810

Production (units)
Sales + Clog inv - Opg inv

5605

4075

6020

4605

4985

5230

5125

5310

c & d. Direct raw materials usage budget and purchases budget

Dec-15

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Zinc

Ply

Zinc

Ply

Zinc

Ply

Zinc

Ply

Zinc

Ply

Zinc

Ply

Demand Sales (Units)

6000

3700

5500

4000

6200

4500

5000

5200

4900

5400

6400

4800

Production

5605

4075

6020

4605

4985

5230

5125

5310

Raw material BZN980

-Required for production

22420

24080

19940

20500

-Closing inventory
(20% of forecasted sales req)

4400

4960

4000

3920

5120

-Opening inventory

4400

4960

4000

3920

Raw material BZN980 requirement
Budget (units) –Usage budget

22980

23120

19860

21700

Raw material BZN980 requirement
Budget (value @10% of 1200 = @120 per unit) –Purchases budget

2757600

2774400

2383200

2604000

Raw material CZN980

-Required for production

8150

9210

10460

10620

-Closing inventory
(20% of forecasted sales req)

1600

<

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